FINMA has issued a framework for the digital verification of the onboarding process, however, not everyone is cheering the new

In a circular to its bank members, Swiss financial regulator, FINMA, issued a framework for digital verification of new customers as part of their onboarding process. Announced on December 21st 2015, the circular has a January 18th deadline for collecting comments about the proposed framework.

The regulatory framework occurs as online and mobile based businesses have been integrating the use of smartphone cameras and webcams to verify customer identification such as driver’s licenses and passports.

Providing verification in minutes compared to manual checks with which compliance teams can often take days to complete the task, fintech firms providing automated solutions are seeing strong demand for their products. Examples include Jumio, whose solution powers Airbnb’s customer verification process as well as AU10TIX who count many of the largest P2P lenders, online forex brokers and money transfer firms as clients.

Within FINMA’s own jurisdiction, Swiss based fintech startup OneVisage has created a solution to allow payments to be authenticated through smartphone selfies. As such, with the technology becoming commonplace for many online financial firms and eCommerce sites, the creation of a regulatory framework for industry-wide standards can be viewed as a natural progression for financial regulators.

For FINMA regulated firms, the proposed rules will no longer require certified identification. This currently is conducted through in-person identification at a financial firm’s place of business as well as the submitting of handwritten signatures to them. With the new rules, companies will be able to use technology to take and verify digital copies of identification documents. In addition, in place of in-person visits, real-time video conferencing can be used.

Dukascopy’s CEO Takes Issue with Technology Burden

While the new framework is expected to improve onboarding efficiency, it does put a new technological burden on financial firms regulated by FINMA. In this regard, Dukascopy Bank’s Co-CEO/CTO, Dr. Andre Duka, issued comments today with his opinion on the circular.

Duka applauded the FINMA initiative, stating: “It is definitely positive, long-awaited by the professional community” when describing how the new rules will allow for non-certified digital copies of account documents to be valid. However, Duka was also critical of the scope of the framework, focusing on two specific points.

First, Duka noted that the initiative only allows for non-certified document copies when the first transfer of funds originates from a Swiss bank. In doing so, foreign customers with funds originating from non-Swiss accounts will still be required to go through the more extensive onboarding process.

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Secondly, Duka was critical about the additional technology requirements firms will face to comply with the proposed rules. Duka explained that firms will be required to conduct the verification of documents with “the help of technical means”. According to Duka, this requirement would be counterproductive as companies already have existing compliance teams to verify customer documents.

Open to discussion though is whether the integration of technology to verify documents will in fact create inefficiencies and overlap of the personnel operating the new solutions. On the one hand, Swiss companies will have to integrate new technologies to handle the digital compliance process. On the other hand, this automation would be expected over the longer term to reduce the number of compliance officers needed at every firm, while also speeding up the overall onboarding process for customers.

On this debate, Ofer Friedman, VP Marketing at AU10TIX, expressed to Finance Magnates that the benefits of automated versus manual document verification include lower abandonment rates in the account opening process, increased fraud prevention and lower back office costs. With regard to the FINMA initiative, Friedman said “Well done Switzerland!” adding that “FINMA makes a big step forward in voicing the imminent need for “technological means” to help authenticate and screen new customers applying for online and mobile financial services.”

Looking ahead, Friedman stated that the next step for FINMA and other regulators governing verification technology is to apply technology standards that verification solutions should meet. He explained: “Not all technologies are the same. 1st generation solutions cannot do what 2nd generation solutions do. Defining technology functionalities and requirements, and accrediting them is the next step we call for”.

Alternative position

Providing further comment to Finance Magnates, Laurent Bellieres, CFO-CRO of Dukascopy Bank explained that the FINMA initiative is more than just technology integration and conflicts with how many companies in the country operate. Bellieres explained that FINMA is interested in making the ‘technical means’ mandatory. As such: “Such system-based authenticity controls are not required for classical account openings where clients visit the institution and show an original ID, thus making it more complex for institutions to use online onboarding than classical account opening”.

Bellieres also said that technical solutions for online businesses with global client bases may not be all encompassing to cover their needs, as he stated: “If you consider the variety of IDs in use in all countries we are doing business with, it would be a big deal controlling authenticity of each of them, especially with “technical means”. No automated system can deal with such an impossible task. As a consequence, we would have to restrict applicability of online onboarding to a defined list of countries and IDs. Also we would have to act as policemen experts in ID authenticity.”

Bellieres concluded: “Such a use proposed by FINMA of the new technologies is opposite to Dukascopy Bank’s expectation because it increases complexity, worsens Swiss competitive position without providing any tangible benefit”.

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Laurent Bellieres

Dear Sirs, After reading the article, we think useful to read the full press release quoted in the above article (https://www.dukascopy.com/media/pdf/Press-release-English-4-01-16.pdf), for full understanding of Dr. Andre Duka’s opinion which slightly differs from the journalist’s opinion. In particular we refer to the following quotations of the article: Quote: “Providing verification in minutes compared to manual checks with which compliance teams can often take days to complete the task, fintech firms providing automated solutions are seeing strong demand for their products.” Quote: “Open to discussion though is whether the integration of technology to verify documents will in fact create inefficiencies and… Read more »